Creating a Global Enterprise
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Creating a Global Enterprise ANNUAL REPORT 2005–06 DR. REDDY’S LABORATORIES LIMITED CREATING A GLOBAL ENTERPRISE In the world of matter, a drop of liquid diffuses slowly in another and forms a pattern that it is distinctive, reflective of its nature. Through more than a decade of steady effort and guided by an unswerving original vision, Dr. Reddy’s Laboratories has been growing into a business that has earned the right to be called global. When a business evolves, rather than changes suddenly, its growth is likely to endure. This year’s cover images, as a whole, tell the story of this transformation. The front shows how an enterprise, like a drop of reagent, can take a global shape in its own distinctive way, guided by its inherent nature. The back cover reflects our focus on three continental geographies and in the inside covers are images of diffusion, reflective of our creative energy. CONTENTS DR. REDDY'S LABORATORIES LIMITED chairman’s key creating a global inspired people, letter highlights enterprise — breakthrough Dr. Reddy’s performance transformational journey 004 008 010 020 safety, health & social board of management corporate environment responsibility — directors discussion & governance Dr. Reddy’s analysis Foundation 023 025 028 030 045 additional five years intangible ratio directors’ shareholders‘ at a glance accounting analysis report information 062 073 074 075 076 IGAAP IGAAP U.S.GAAP information on statement standalone consolidated consolidated the financials of pursuant to financials financials financials subsidiary Section 212 companies 087 125 163 202 203 notice of glossary annual general meeting 204 209 chairman’s letter 2005-06 has been a momentous what has happened in 2005-06 — and has transformational year in the history of occurred across various businesses of your your Company. The transformation is Company. not just of the company coming out of its Let me share with you some of the financial and operation trough of major developments of the year. 2004-05. It is about thinking out of the On a consolidated basis and as per U.S.GAAP, box, aggressively growing its businesses, your Company’s revenues have grown by almost making landmark deals and completing 24 per cent to Rs.24.3 billion in 2005-06. Thus, two significant global acquisitions. for the first time in its history, it has comfortably 2005-06 has proved to me that your crossed the U.S.$500 million mark. Net profits have Company has it in its DNA to quickly increased from a mere Rs.211 million in 2004-05 to + n my last year’s letter to you, I had written, I “There is nothing like a year of adversity to strengthen, re-focus and re-channel entrepreneurial drives.” That is exactly what has happened in 2005-06 — and has occurred across various businesses of your Company. overcome adversity and get back on to the Rs.1.6 billion in 2005-06. And earning per share has path of rapid and broad-based growth to increased from Rs.2.76 to Rs.21.24. realise its vision of becoming a discovery- These numbers reflect fundamental changes in led global pharmaceutical company. your Company’s ways of doing business. I would like If you will recollect, 2004-05 was to touch upon a few of these. DR. K ANJI REDDY a difficult and challenging year. To begin with, we have become more aggressive CHAIRMAN Consolidated revenues had declined; and in growing our businesses. The Branded Formulations profits had fallen precipitously. In my team has succeeded in increasing its revenues by last year’s letter to you, I had written, 27 per cent to Rs.9.9 billion — and has done so in “There is nothing like a year of adversity international markets as well as in India. Revenue to strengthen, re-focus and re-channel from Active Pharmaceutical Ingredients (API) entrepreneurial drives.” That is exactly has grown by 19 per cent to Rs.8.2 billion. 004 DR. REDDY'S LABORATORIES LIMITED ANNUAL REPORT 2005–06 2005–06 REPORT ANNUAL Sustained efforts of the Generics company for an all cash deal of Ε483 million — + business in Europe have helped which, I am told is largest international acquisition n March 2006, overcome difficult market conditions in made by an Indian company up to date. With a I we completed the U.S.; and revenues have grown by portfolio of 145 marketed products and several more in CHAIRMAN’S LETTER 13 per cent to Rs.4.1 billion. Customs the pipeline, betapharm had a turnover of Ε164 million the acquisition of the Pharmaceutical Services (CPS) has in 2005. This is expected to increase in the future. More betapharm Group, grown its stand-alone business by 68 significantly it gives your Company a strong foothold in per cent to Rs.523 million; with its the large German Generics market. Germany’s fourth Mexican acquisition — which I will Given the way in which your Company’s largest Generics share with you shortly — revenues management is charged up and its successes in have grown to Rs.1.3 billion. These are integrating these international entities, something pharmaceutical examples of the re-discovered energy of tells me that you may well be seeing more global company for an all your Company’s employees. acquisitions in the coming years. But there is more. Instead of purely The scientist in me is delighted in the way your cash deal of Ε483 focusing on organic growth and Company has re-engineered its R&D and has built an million — which, I cost cutting, your Company’s senior even stronger pipeline for the future. Last year, I wrote management decided that it was time about the need for ‘smart R&D’. We are seeing that am told is largest to leverage the cash in its balance happen at Dr. Reddy’s on several fronts. international sheet to actively scout for international In March 2006, your Company concluded a acquisition made by acquisitions. landmark deal in discovery research where Dr. Reddy’s, In November 2005, your Company Citigroup Venture and ICICI Venture joined hands to an Indian company purchased Roche’s API business, its form an integrated drug development company called up to date. It has order books and its state of the art Perlecan Pharma Private Limited with an equity capital manufacturing plant at Cuernavaca commitment of U.S.$52.5 million. In this deal, a portfolio of 145 in Mexico for U.S.$61 million. This Dr. Reddy’s has transferred to Perlecan all rights marketed products acquisition alone increased Dr. Reddy’s and titles of four discovery molecules in the area of fourth quarter revenue by Rs.804 cardiovascular and metabolic disorders. Perlecan’s and several more in million and will help the Company’s CPS priority is to accelerate the development of these the pipeline. business to grow from around U.S.$12 molecules and thereafter seek out-licensing, co- million to U.S.$100 million in the next development or joint commercialisation opportunities. 15 months. Also in the year, Dr. Reddy’s and Rheoscience In March 2006, your Company A/S have agreed to co-partner the development of completed the acquisition of the balaglitazone (DRF 2593) a partial PPAR-gamma betapharm Group, Germany’s fourth agonist for the treatment of Type 2 diabetes, which is largest Generics pharmaceutical expected to move to Phase III clinical trials. The CREATING A GLOBAL ENTERPRISE 005 arrangement allows Dr. Reddy’s to keep its full rights R&D and product pipeline. Something else has also for North America, Japan and the rest of the world, occurred which I need to share with you. except Europe (excluding Russia and CIS) and China. As you know, we are a company that is also listed Today, five of the Company’s seven key NCEs have on the New York Stock Exchange and thus, subject advanced to clinical development. And there are a to the laws and regulations of the U.S. Securities few in pre-clinical that are showing considerable and Exchanges Commission (SEC). In 2002 the promise. U.S. passed the Sarbanes-Oxley Act (SOX), which In addition, we have significantly strengthened our imposed stringent corporate governance conditions Generics and API pipelines. In 2005-06, your Company and internal control over financial reporting on all filed 12 Abbreviated New Drug Applications (ANDAs), companies registered with the SEC. As a foreign taking the total number of ANDA filings to 70. As of registrant, your Company had to comply with + he scientist in me is delighted in the way in which T your Company has re-engineered its R&D and has built an even stronger pipeline for the future. Last year, I wrote about the need for ‘smart R&D’. We are seeing that happen at Dr. Reddy’s on several fronts. March 31, 2006, our U.S. Generics pipeline comprised Section 404 of SOX by March 31, 2007. 49 ANDAs pending with the U.S. Food and Drugs Instead of waiting for the deadline, we took the Administration, including 29 Para IVs. As far as APIs view that this is a worthy exercise which needed to are concerned, the Company increased the number of be fast-forwarded. Therefore, 18 months ago, we products in its Drug Master File (DMF) by 30 during began an all-out effort to comply with the provisions 2005-06, of which 17 were U.S. DMFs, 8 Canadian of SOX-404 of the Sarbanes Oxley Act, 2002. and 5 European. The total number of DMFs now I am delighted to inform you that your Company stand at 151 — 81 filed in the U.S., 28 in Canada has become SOX-404 compliant 10 months before and 42 in Europe.